What is Tax Increment Financing (TIF)
Let’s look at it this way. There is a piece of property that is generating minimal tax revenue. If that property were developed and turned into, say, a shopping mall, the newly developed property would yield significant tax revenues. The upfront costs of the development are high and require borrowing. In order to pay back the borrowed money, the ‘tax increment’ (that being the difference between the amount of taxes collected prior to and after the development takes place) is designated to pay back the loan incurred to fund the development.
A simplistic depiction might look like this:
- Current taxes collected on the property $100
- Development costs $100,000
- Post development taxes $10,000
- Tax increment $10,000 – 100 = $9900
- For the first 10-15 years post development the city would use the tax increment ($9900) to pay back the development loan
- Once the loan is paid off, the taxes generated from the development would return to the city’s general revenue stream
History of Tax Increment Financing (TIF)
Although relatively new in Canada and especially Manitoba, TIF has been used in the United States for almost 60 years. In Manitoba the government introduced a bill in 2008 which led to the enactment of the Community Revitalization Tax Increment Financing Act in 2009.
In a 2008 news release when the legislation was announced, the government indicated:
“Our priorities for TIF include support for the further development of Winnipeg’s inland port, rapid transit system, as well as affordable housing in downtown Winnipeg”.
The government further stated:
“Money collected from a community revitalization property would then be invested only in the same designated area”.
The press release concluded by saying:
“Tax increment financing is used in several American cities to support revitalization and renewal initiatives. In Manitoba these levies would be used to support economic development, community revitalization such as housing, social and cultural development and heritage preservation”.
The minister of the day also stated:
“It is our intent to consult with and report on the use of tax increment financing to ensure full accountability and support for our priorities”.
The Community Revitalization Tax Increment Financing Act was passed in 2009.
General Assessment of Tax Increment Financing
In the United States TIF has been widely used as a tool to spur economic development in depressed areas. The general conclusion seems to be that if properly used, TIF can be a valuable tool.
There have been some general criticisms about TIF schemes. They include:
- designation of areas as TIF designated areas that would have been developed in any event even without designation;
- favouritism and special advantage for developers who are politically well-connected; and
- tax payers bearing the cost of additional public services needed to service the newly developed property.
As an early attempt at TIF, the Stadium Project, does not seem to fall in line with the stated goals and priorities announced in 2008 prior to the introduction of the legislation.
The tax increment ‘generated’ in the downtown area is being ‘spent’ in the south end of the city- not to develop an inland port, not to support rapid transit, not to create housing in the downtown. No, instead its being used to build a new stadium at the University of Manitoba.